Question

Consider the following statements regarding Company A and Company B:The two companies have identical operating results but have made different accounting method choices.Company B reported lower COGS than Company A this year. Prices rose throughout the year.Both companies took a PP&E write downs in 2016. Company B reversed the write down and wrote the assets back up this year.Which of the two companies most likely reports under US GAAP?A. A onlyB. B onlyC. A and BD. Neither A nor B

Answer 1

Answer:

A. A only

Explanation:

U.S. Generally Accepted Accounting Principles (GAAP) does not allow property, plant, and equipment to be written up or revalued. If the fair value of PP&E falls below the book value and the amount is material then a company must write down the asset to fair value.

Since under US GAAP, once PPE is written, it can not be reversed. as Company B is indicated to have reversed the write down while company A did not. It therefore means that Company A only is reporting under US GAAP.